Proposition 87 would have imposed a severance tax, effective in January 2007, on oil production in California to generate revenues to fund $4 billion in alternative energy programs over time.

Campaign spending on Proposition 87 set a record, with a total of $154.3 million coming from both sides.[1] The great majority of the funds spent to promote Proposition 87 came from one individual, Stephen Bing, who contributed $49.5 million.[2] According to the Los Angeles Times, Bing's contributions to Proposition 87 amounted to "the biggest single personal investment in a ballot proposition in state history."[3]

Text of measure

Title

Question

The question on the ballot was:

"Should California tax oil producers to fund the establishment of a $4 billion Clean Alternative Energy Program with the goal of reducing oil and gasoline consumption through incentives for alternative energy, education and training?"

Summary

Establishes $4 billion program with goal to reduce petroleum consumption by 25%, with research and production incentives for alternative energy, alternative energy vehicles, energy efficient technologies, and for education and training.

Funded by tax of 1.5% to 6% (depending on oil price per barrel) on producers of oil extracted in California. Prohibits producers from passing tax to consumers.

Program administered by new California Energy Alternatives Program Authority.

Fiscal impact

New state revenues—depending on the interpretation of the measure—from about $225 million to $485 million annually from the imposition of a severance tax on oil production, to be used to fund $4 billion in new alternative energy programs over time.

Potential reductions of state revenues from oil production on state lands of up to $15 million annually; reductions of state corporate taxes paid by oil producers of up to $10 million annually; local property tax reductions of a few million dollars annually; and potential reductions in fuel-related excise and sales taxes.

Arguments in favor

Supporters of Prop 87 argued that:

California is the third-largest oil producing state and the only state that does not collect an oil extraction fee. Oil companies pay billions of dollars in drilling fees in Texas, Louisiana and Alaska.

California is the number one oil-consuming state. Fifty percent of the state's imported oil comes from Saudi Arabia and Iraq.

California consumers pay among the highest gas prices in the nation.

California air quality is the second worst in the nation. Pollution from gas powered vehicles is responsible for hundreds of thousands of cases of asthma and lung disease each year

Proposition 87 prohibits oil companies from raising gas prices to pass the tax on to consumers.

It provides consumers with rebates to buy clean cars and use clean energy.

It will make oil companies pay for cleaner energy, create thousands of jobs, and reduce air pollution.[5]

Donors

$61,886,129 was contributed to the campaign in favor of a "yes" vote on Proposition 87.[6]

Arguments against

It would spend $4 billion to fund a new state bureaucracy of 50 political appointees that is not required to produce results or be accountable to taxpayers

It allows the Authority to operate outside the state budget review process and the normal checks and balances that govern other agencies.

It allows the sale of billions of dollars in bonds it may not be able to repay and could force a state bailout at taxpayer expense.

Prop 87 does not require all the new taxes to be spent in California, much less in the U.S.

Economists report that higher taxes on in-state oil production would reduce in-state oil production and increase dependence on oil from the Middle East.[7]

Donors

$94,430,014 was contributed to the campaign in favor of a "no" vote on Proposition 87.[8]

Donors of $100,000 or more were:

Donor

Amount

Chevron

$38,000,000

AERA Energy

$32,824,243

Occidental Oil and Gas

$9,550,000

Conoco Philips

$3,025,000

BP North America

$3,000,000

Plains Exploration & Production

$2,804,217

Berry Petroleum

$1,200,000

Seneca Resources

$530,000

Breitburn Energy

$450,000

Veneco

$276,910

DCORR, LLC

$240,000

MacPherson Oil

$183,776

Signal Hill Petroleum

$182,246

E & B Natural Resources

$167,000

Crimson Resource Management

$160,000

TRC Operating Company

$155,000

Linn Operating

$130,500

San Joaquin Facilities Management

$107,000

California Independent Petroleum Association

$103,500

Vaquero Energy

$100,000

Campaign finance fine

Aera Energy agreed on November 2, 2007 to pay a $15,000 fine to the Fair Political Practices Commission in California because it did not properly disclose through electronic filings three contributions totalling $5 million it made to fight Prop 87 in the waning weeks of the intense political struggle over this ballot measure.

Aera filed written disclosures of the late contributions. However, it failed to file the disclosures electronically. This meant that the discloures were not available for immediate placement on the state's website for public viewing.

California financial disclosure laws require that late contributions be electronically disclosed with 24 hours of being made. In this case, the donations should have been electronically disclosed by October 28, 2006.

A representative for Aera said the violation was inadvertent. The FPPC said there was no evidence the violation was intentional. The contribution was electronically disclosed by the recipient committee within the mandated time period.[9]